Arias v. Vital Link Lending Corp.

THIRD DIVISION

[G.R. No. 227672. November 10, 2021.]

ARIEL JOSEPH B. ARIAS, petitioner,vs. VITAL LINK LENDING CORPORATION, and ITS STOCKHOLDERS, NAMELY, RODOLFO ARCEO, ET AL., respondents.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, Third Division, issued a Resolution datedNovember 10, 2021, which reads as follows:

"G.R. No. 227672 (Ariel Joseph B. Arias, Petitioner,v. Vital Link Lending Corporation, and its stockholders, namely, Rodolfo Arceo, et al.,Respondents.) — This resolves the Petition for Review on Certiorari (Petition) 1 challenging the Decision 2 dated 22 December 2015 and the Resolution 3 dated 03 October 2016 by the Court of Appeals (CA) in CA-G.R. SP No. 134463. The CA affirmed the Decision 4 dated 20 February 2014 of Branch 158, Regional Trial Court (RTC) of Pasig City in SEC Case No. 06-68.

Antecedents

The case involves a dispute among the shareholders of Vital Link Lending Corporation (Vital Link), a domestic corporation engaged primarily in lending 5 with an authorized capital stock of Php5,000,000.00, divided into 50,000 shares with a par value of Php100.00 per share each. 6

Petitioner Ariel Joseph Arias (Arias) and respondents Rodolfo Arceo (Arceo), Cornelio Basa (C. Basa), Imelda Basa (I. Basa), Reynaldo Parungao (Parungao), and Gerardo Santos (Santos) (collectively, respondents) were the incorporators of Vital Link, together with Juanito Salazar, Yoshikazu Teresawa (Terasawa), and Leo Lim (Lim). 7

Out of the authorized capital stock of Vital Link, Php2,500,000.00 was subscribed and fully paid up by the following stockholders as of 31 July 2002: 8

 

Stockholder	No. of Shares	Paid-Up (in Php)
Arceo	1000	100,000.00
Arias	16,000	1,600,000.00
C. Basa	3,490	349,000.00
I. Basa	3,490	349,000.00
Parungao	600	60,000.00
Terasawa	500	50,000.00
Santos	10	1,000.00
Lim	10	1,000.00
Total	25,000	2,500,000.00

 

On 22 August 2002, a special joint meeting of the board of directors and stockholders was held, wherein they resolved to fully subscribe and pay for the remaining unsubscribed portion of the authorized capital stock, 9 resulting in the following capital structure:

 

Stockholder	No. of Shares	Amount Subscribed (in Php)	Paid-Up	Unpaid Subscription (in Php)
Arceo	8,795	879,450.00	100,000.00	779,450.00
Arias	18,206	1,820,550.00	1,820,550.00	-
C. Basa	7,000	700,000.00	349,000.00	351,000.00
I. Basa	7,000	700,000.00	349,000.00	351,000.00
Parungao	7,000	50,000.00	349,000.00	650,000.00
Terasawa	500	50,000.00	50,000.00	-
Santos	750	75,000.00	1,000.00	74,000.00
Lim	750	75.000.00	1,000.00	74,000.00
Total	50,000	5,000,000.00	3,019,550.00	2,279,450.00

 

In the same meeting, the board of directors and stockholders likewise adopted a resolution to increase their authorized capital stock from Php5,000,000.00 to Php20,000,000.00. 10

On 19 December 2002, the board of directors of Vital Link resolved to enjoin Arceo, C. Basa, I. Basa, Parungao, Santos and Lim to complete the payment for their respective unpaid subscriptions no later than 31 March 2003, after which "all unpaid subscriptions shall be sold to other stockholders and/or third persons." 11 It appears, however, that only C. Basa and I. Basa paid their unpaid subscriptions. 12

Meanwhile, on account of the planned increase in Vital Link's capital, Arias invited Fernando Gaite (Gaite) and Pacifico Lejano (Lejano) to invest in the corporation. It appears that Gaite and Lejano heeded the invitation as they made payments to the corporation in the total amount of Php51,000.00 and Php2,000,000.00, respectively, for which Vital Link issued original receipts. Unfortunately, the planned increase of capital stock did not materialize. 13

On 07 June 2005, issue arose when Arias complained to the board of directors about the alleged gross mismanagement of C. Basa, who was then the president of the corporation. 14

On 16 September 2005, respondents set a special stockholders' meeting but they were prevented from entering the premises of Vital Link's office. As a result thereof, respondents could not perform their duties and functions as legitimate members of the board and corporate officers of Vital Link. This, notwithstanding, Vital Link's annual stockholders' meeting was held in another location on 05 November 2005 where Parungao, Arceo, C. Basa, I. Basa, and Lim were elected as members of the board of directors. Among Vital Link's stockholders, only Arias was absent during the said stockholders' meeting. 15

In view of the continued act of Arias in preventing respondents from entry into the corporation's office, the latter filed the Complaint with Prayer for the Issuance of a Temporary Restraining Order and/or a Writ of Preliminary Mandatory Injunction before the RTC on 01 March 2006. 16

For his part, Arias questioned the validity of the stockholders' meeting held on 05 November 2005. Arias claimed that his shareholding of 25,020 shares, taken together with the that of Lejano's 8,900 shares and Gaite's 10 shares, constitute the majority of the outstanding capital stock of Vital Link. 17

Ruling of the RTC

On 20 April 2007, the RTC granted the application for the issuance of a writ of preliminary injunction. Almost seven years after, or on 20 February 2014, the RTC rendered the decision in favor of respondents, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs, finding them the legitimate stockholders, members of the Board of Directors and officers of Vital Link Lending Corporation.

Accordingly, defendant Ariel Joseph Arias is hereby directed to —

1. peacefully turn over to plaintiffs control and possession of the corporation's principal office at Unit 805 City and Land Mega Plaza Condominium, including all its property and records;

2. refrain from prohibiting or disallowing plaintiffs from entering, using and possessing the corporation's principal office at Unit 805 City and Land Mega Plaza Condominium;

3. refrain from interfering, meddling and/or disturbing the discharge of the duties, responsibilities and functions of plaintiffs as stockholders, members of the Board of Directors and officers of Vital Link Lending Corporation;

4. pay plaintiffs Fifty Thousand Pesos (P50,000.00) as attorney's fees; and

5. pay plaintiffs the cost of suit.

SO ORDERED.18

The RTC found that Lejano and Gaite were not stockholders of Vital Link, treating the payments made by them as mere investments in the corporation. It ratiocinated that since the authorized capital stock of Vital Link was already fully subscribed and the planned increase thereof did not materialize, the only possible source of the alleged shares of Lejano and Gaite would be from the existing stockholders of Vital Link. However, the RTC rejected the claim of Arias that Lejano obtained his alleged shares from the unpaid subscriptions of Arceo on the ground that the receipts presented to prove payment for said shares were issued by Vital Link. 19

Further, the RTC ruled that there could not have been a valid transfer of delinquent stocks from Arceo to Lejano since the requirements for delinquency sale under Section 68 of the Corporation Code were not complied. As to Gaite's alleged shares, the RTC did not give credence to the stock certificate issued in Gaite's name and the stock and transfer book where the same is recorded. The RTC likewise took into account Arias' conflicting claims on the source of Gaite's shares, i.e., Arias initially claimed that said shares correspond to Gaite's investment on the capital increase, but then he later claimed that the shares came from him by virtue of a deed of assignment. 20

Thus, the RTC held that the individual respondents constitute the majority stockholders of Vital Link based on the last uncontested listing of stockholders appearing in the minutes of the 22 August 2002 special joint meeting. Consequently, the RTC upheld the validity of the 05 November 2005 annual stockholders' meeting attended by respondents. 21

Ruling of the CA

On appeal, the CA affirmed the RTC, in the Decision dated 22 December 2015. The dispositive portion of reads:

WHEREFORE, premises considered, the petition is DENIED. The assailed Decision dated February 20, 2014 in SEC Case No. 06-68 is hereby AFFIRMED in toto.

SO ORDERED.

In affirming the findings of the RTC that respondents were the majority stockholders of Vital Link, the CA rejected the claim of Arias that Lejano and Gaite were legitimate stockholders of the corporation in the absence of document evidencing valid transfer. Thus, the CA upheld the validity of the stockholders' meeting held on 05 November 2005, considering that there was quorum with the presence of respondents representing the majority of the outstanding capital stock of Vital Link, notwithstanding the absence of Arias in the meeting. The CA likewise found the actions of Arias as unjust and oppressive, meriting the grant of attorney's fees in favor of respondents who were forced to protect their interest. 22

Petitioner moved for reconsideration, which was denied in the Resolution dated 03 October 2016. 23

Aggrieved, Arias filed the present Petition. 24

Issue

For resolution of this Court is whether or not the CA gravely erred when it affirmed the ruling of the RTC recognizing the individual respondents as the majority stockholders of Vital Link, upholding the validity of the stockholders' meeting dated 05 November 2005, and granting the award of attorney's fees.

Ruling of the Court

The Petition must be denied.

At the outset, it is emphasized that as a general rule, only questions of law may be raised in a Rule 45 petition. 25 "There is a question of law 'when there is doubt or controversy as to what the law is on a certain set of facts,'" that is, the issue raised can be determined without reviewing or evaluating the evidence. 26 On the other hand, there is a question of fact when there is doubt as to the truth or falsehood of facts, which involves the examination of probative value of the evidence presented. 27

"Notably, however, the rule admits of several exceptions such as: (a) when the findings are grounded entirely on speculation, surmises, or conjectures; (b) when the inference made is manifestly mistaken, absurd, or impossible; (c) when there is grave abuse of discretion; (d) when the judgment is based on a misapprehension of facts; (e) when the findings of facts are conflicting; (f) when in making its findings, the CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (g) when the CA's findings are contrary to those by the trial court; (h) when the findings are conclusions without citation of specific evidence on which they are based; (i) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; (j) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; or (k) when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion." 28

In this case, Arias is clearly raising a question of fact. In questioning the findings of the RTC as to who constitutes the majority stockholder of Vital Link and the consequent validity of the 05 November 2005 stockholders' meeting, Arias want this Court reexamine the pieces of evidence evaluated by the RTC and the CA.

This Court, however, "is not a trier of facts and it is not its duty to review, evaluate, and weigh the probative value of the evidence adduced before the lower courts." 29 Further, factual findings of the RTC are conclusive and binding upon this Court, especially when they have been affirmed by the CA. 30

Arias contends that this case falls under the exception to the general rule alleging that the CA rendered its decision based on misappreciation of facts. Accordingly, Arias claims that it committed grave abuse of discretion, and the decision is contrary to the evidence on record. 31 Arias maintains that the CA erred in failing to recognize the documentary evidence supporting Lejano and Gaite's ownership of shares in Vital Link, i.e., stock certificates in the name of Lejano and Gaite recorded in the stock and transfer book of the corporation.

The contention is without merit.

While stock certificates and the stock and transfer book are regarded as evidence of ownership of shares in a corporation, 32 the RTC properly rejected these pieces of evidence in view of the following circumstances:

Several factors, however, lead the Court to reject the Stock and Transfer Book pages as convincing evidence. First, Veronica Del Rosario merely identified the same. There was no testimony at all on the entries, much less those involving the transfer of shares from Arias to Gaite. Second, there was no explanation why it was Del Rosario who was testifying thereon when she was merely a bookkeeper of Vital Link. Curiously, the Corporate Secretary (Reynaldo Parungao, according to Arias) who is the custodian of corporate records, keeps the stock and transfer book and makes proper and necessary entries therein, although presented as witness, gave no testimony at all respecting the Stock and Transfer Book. Third, there are no signatures in the spaces requiring the same, as in the page showing the Certificates Issued. Fourth, plaintiff Cornelio Basa testified that the investors who paid additional for purposes of the intended increase in capital stock were never registered in the Stock and Transfer Book, yet the same contains entries showing Lejano was so registered. Fifth, Arias admitted during cross-examination that the Stock and Transfer Book was in his possession prior to being submitted to the Court, as he was in the office of the corporation, with the Court noting that plaintiffs had been denied access to the office and documents of Vital Link prior to the Writ of Injunction. Finally, there was no evidence, whatsoever, as to who made the entries in the Book. This is crucial, considering that the validity of the shareholding of Lejano and Gaite is precisely in question and plaintiffs had expressed their reservations as to the authenticity of documents presented to the Court after the filing of the case. In light of all the foregoing, the Court cannot give much weight to the entries in the Stock and Transfer Book.

xxx xxx xxx

So, too, the Court notes that the Certificate of Stock of Arias, from which the shares of Gaite were supposed to have originated contained superimpositions indicating that it has been altered. Then, too, the Certificate of Stock of Gaite does not contain the year when it was supposedly issued. These anomalies simply add to the unreliability of Arias' evidence on this point. 33

Upon evaluation of the records of this case vis-à-vis the allegations of Arias, the Court is not convinced that the RTC and the CA erred in not giving credence to said pieces of evidence.

The stock and transfer book, being a private document, should have been identified and authenticated by anyone who saw the document executed or written or by evidence of the genuineness of the signature or handwriting of the maker. 34 Indeed, the corporate secretary, as the custodian of the corporate records, "keeps the stock and transfer book and makes proper and necessary entries therein." 35 Thus, the failure of Vital Link's corporate secretary to testify on the authenticity and due execution of the corporation's stock and transfer book justifies the RTC's rejection thereof.

Notably, in his petition, Arias did not contradict the reasons cited by the RTC in rejecting the stock certificate and stock and transfer book.

As to Lejano's alleged shares, Arias insists that Lejano validly acquired the unpaid shares of Arceo and Parungao. Arias argues that notwithstanding noncompliance with the publication requirement under Section 68 of the Corporation Code, the validity of Lejano's acquisition of the delinquent shares should be recognized. For this, he claims that in the board resolution dated 19 December 2002, 36 the members of the board of directors and the stockholder themselves agreed that the sale of the unpaid shares should no longer be done with any formal declaration of delinquency. 37

The argument deserves scant consideration.

Under the Section 67 38 of the Corporation Code, a formal declaration from the board is not necessary for an unpaid subscription to become delinquent in the event of failure to pay the unpaid subscription within the 30-day period from the date specified in the subscription contract or the date stated in the call. 39 In the event of such failure to pay unpaid subscription, there are two remedies available to the corporation. The first remedy is the delinquency sale provided under Section 68 40 of the Corporation Code and the second is by a court action to recover unpaid subscription pursuant to Section 70 41 thereof.

It is thus clear from the foregoing that while the board resolution dated 19 December 2002 may have dispensed with the need for a formal declaration of delinquency prior to a delinquency sale, nothing therein allows for such sale not in compliance with the procedure provided under Section 68 of the Corporation Code.

On this note, We quote with approval the pronouncement of the RTC, thus:

Arias cannot hope to be exempted from the clear requirements of the law by stating that there was an implied declaration by the Board nor by citing the 19 December 2002 Board Resolution, which was issued long before the shares became delinquent. Neither can he simply give the excuse that there was no publication because the corporation is a very small corporation. All corporations, big or small, must abide by the provisions of the Corporation Code and cannot have rules and practices other than those established by law. 42

The Court likewise rejects the contention of Arias that respondents are estopped from claiming that Lejano and Gaite are not stockholders of Vital Link considering that C. Basa signed the corporation's General Information Sheet 43 (GIS) where Lejano and Gaite were indicated as stockholders. Since there can be no valid transfer of delinquent stock without compliance with the requirements under Section 68 of the Corporation Code and considering the conflicting statement of Arias as to the source of Gaite's share, the GIS cannot be the sole basis for the alleged ownership of Lejano and Gaite over the shares of Vital Link.

With the foregoing disquisition, the Court finds no cogent reason to reverse the rulings of the RTC, as affirmed by the CA, relative to the validity of the stockholders' meeting held on 05 November 2005 and the award of attorney's fees.

WHEREFORE, premises considered, we DENY the petition. The Decision dated 22 December 2015 and the Resolution dated 03 October 2016 by the CA in CA-G.R. SP No. 134463 are AFFIRMED.

Ariel Joseph Arias is hereby directed to:

1. peacefully turn over to plaintiffs control and possession of the corporation's principal office at Unit 805 City and Land Mega Plaza Condominium, including all its property and records;

2. refrain from prohibiting or disallowing plaintiffs from entering, using and possessing the corporation's principal office at Unit 805 City and Land Mega Plaza Condominium;

3. refrain from interfering, meddling and/or disturbing the discharge of the duties, responsibilities and functions of plaintiffs as stockholders, members of the Board of Directors and officers of Vital Link Lending Corporation;

4. pay plaintiffs Fifty Thousand Pesos (P50,000.00) as attorney's fees; and

5. pay plaintiffs the cost of suit.

SO ORDERED." (Dimaampao, J., no part, due to his prior action in the Court of Appeals;Perlas-Bernabe, J., designated additional Member per Special Order No. 2839-H dated 08 October 2021.)

By authority of the Court:

(SGD.) MISAEL DOMINGO C. BATTUNG IIIDivision Clerk of Court

Footnotes

1. Rollo, pp. 12-40.

2. Id. at 46-61; Penned by Associate Justice Carmelita Salandanan Manahan and concurred in by Associate Justices Japar B. Dimaampao and Franchito N. Diamante of the Eight (8th) Division, Court of Appeals, Manila.

3. Id. at 63-65.

4. CA rollo, pp. 38-56; Penned by Presiding Judge Maria Rowena A. Modesto-San Pedro.

5. Id. at 75.

6. Id. at 79.

7. Id.

8. Id. at 48.

9. Id., at 85-86.

10. Rollo, p. 47.

11. Id. at 235.

12. CA Rollo, p. 51.

13. Id. at 42-43.

14. Rollo, p. 50.

15. Id.

16. Id. at 52.

17. Id.

18. Id. at 53-54.

19. CA rollo, pp. 38-56.

20. Id.

21. Id.

22. Rollo, pp. 55-60.

23. Id. at 63-64.

24. Id. at 12-40.

25. Section 1, Rule 45 of the Rules of Court.

26. See Villamor, Jr. v. Umale, 744 Phil. 31 (2014), G.R. Nos. 172843 & 172881, 24 September 2014 [Per J. Leonen].

27. Id.

28. Unera v. Shin Heung Electro Digital, Inc., G.R. No. 228328, 11 March 2020 [Per J. Zalameda].

29. Frondarina v. Malazarte, 539 Phil. 279 (2006), G.R. No. 148423, 06 December 2006 [Per J. Velasco, Jr.].

30. Dee Hwa Liong Foundation Medical Center v. Asiamed Supplies and Equipment Corp., 817 Phil. 67 (2017), G.R. No. 205638, 23 August 2017 [Per J. Leonen].

31. Rollo, p. 419.

32. Section 63 of the Batasang Pambansa Bilang 68 [now Section 62, Republic Act No. 11232].

33. CA rollo, pp. 49-50.

34. Section 20, Rule 132 (B) of the Rules of Court.

35. Torres, Jr. v. Court of Appeals, 344 Phil. 348 (21997), G.R No. 120138, 05 September 1997 [Per J. Kapunan].

36. Rollo, p. 48.

37. Id. at 31.

38.Section 67. Payment of balance of subscription. — Subject to the provisions of the contract of subscription, the board of directors of any stock corporation may at any time declare due and payable to the corporation unpaid subscriptions to the capital stock and may collect the same or such percentage thereof, in either case with accrued interest, if any, as it may deem necessary.

Payment of any unpaid subscription or any percentage thereof, together with the interest accrued, if any, shall be made on the date specified in the contract of subscription or on the date stated in the call made by the board. Failure to pay on such date shall render the entire balance due and payable and shall make the stockholder liable for interest at the legal rate on such balance, unless a different rate of interest is provided in the by-laws, computed from such date until full payment. If within thirty (30) days from the said date no payment is made, all stocks covered by said subscription shall thereupon become delinquent and shall be subject to sale as hereinafter provided, unless the board of directors orders otherwise. (Emphasis Supplied).

39. See SEC-OGC Opinion No. 16-05 dated 31 March 2016.

40.Section 68.Delinquency sale. — The board of directors may, by resolution, order the sale of delinquent stock and shall specifically state the amount due on each subscription plus all accrued interest, and the date, time and place of the sale which shall not be less than thirty (30) days nor more than sixty (60) days from the date the stocks become delinquent.

Notice of said sale, with a copy of the resolution, shall be sent to every delinquent stockholder either personally or by registered mail. The same shall furthermore be published once a week for two (2) consecutive weeks in a newspaper of general circulation in the province or city where the principal office of the corporation is located.

Unless the delinquent stockholder pays to the corporation, on or before the date specified for the sale of the delinquent stock, the balance due on his subscription, plus accrued interest, costs of advertisement and expenses of sale, or unless the board of directors otherwise orders, said delinquent stock shall be sold at public auction to such bidder who shall offer to pay the full amount of the balance on the subscription together with accrued interest, costs of advertisement and expenses of sale, for the smallest number of shares or fraction of a share. The stock so purchased shall be transferred to such purchaser in the books of the corporation and a certificate for such stock shall be issued in his favor. The remaining shares, if any, shall be credited in favor of the delinquent stockholder who shall likewise be entitled to the issuance of a certificate of stock covering such shares.

Should there be no bidder at the public auction who offers to pay the full amount of the balance on the subscription together with accrued interest, costs of advertisement and expenses of sale, for the smallest number of shares or fraction of a share, the corporation may, subject to the provisions of this Code, bid for the same, and the total amount due shall be credited as paid in full in the books of the corporation. Title to all the shares of stock covered by the subscription shall be vested in the corporation as treasury shares and may be disposed of by said corporation in accordance with the provisions of this Code.

41.Section 70.Court action to recover unpaid subscription. — Nothing in this Code shall prevent the corporation from collecting by action in a court of proper jurisdiction the amount due on any unpaid subscription, with accrued interest, costs and expenses.

42. CA rollo, p. 47.

43. Rollo, pp. 191-202.